In the face of mega-fine, LCRB, CSU quietly amend enforcement procedures

Now that British Columbia’s cannabis enforcement team has issued its first fines against illicit operators, the procedures of the nascent arm of the provincial government are being called into question.

Alex Robb is among the first in B.C. to face a hefty fine from the province’s Community Safety Unit (CSU). The director of the Trees Cannabis chain of dispensaries—who says he owns just 1.3 per cent of the company—was issued a notice of administrative monetary penalty (NAMP) on January 20 for selling cannabis without a licence at the chain’s Alpha Street location, even though Robb personally never sold any cannabis.

The penalty? A whopping $1.5 million.

In a lengthy interview with Inside the Jar, Robb detailed the timeline leading up to the fine, and expressed his dissatisfaction with the enforcement procedures and the process around appealing the penalty.

“My conscience has been bothered by the process itself,” Robb said by phone from Victoria. “Not simply that it’s been placed on me personally, and not just that it’s such an excessive amount—but because the process [the CSU] is using really does fall afoul of most principles of procedural fairness.”

Post-application uncertainty

The numbered company behind Trees Cannabis, formerly known as Trees Island Grown, has operated dispensaries on Vancouver Island since 2015, with five shops in Victoria, two in Nanaimo, and an outlier (FARM Dispensary) in Vancouver’s Downtown Eastside. According to Robb, most of the Vancouver Island dispensaries had been issued municipal licences, while all had been rezoned for cannabis and were in good standing in their communities.

Inside the Trees location at 695 Alpha Street (handout)

“We were good operators in the city, and I think that was being acknowledged,” said Robb. In the five years Trees has operated dispensaries in Victoria, he said no location had ever received a single notice of infraction or ticket from the municipality.

On October 17, 2018, Robb submitted cannabis retail store licence applications for seven of the company’s eight dispensaries. Upon applying, he felt confident the long-running chain would be successful in its bid to transition to the legal market.

Just three days prior to legalization, Minister Mike Farnworth made it clear that existing businesses should shut down if they wanted to obtain provincial licences. But with the closure of several shops in Victoria and increasingly limited access, Trees was committed to remaining open and continuing to serve the community until it was issued its licence.

“We saw that there were other storefronts that were continuing to operate, and that then received their approval-in-principle, and would then close down and reopen as a licensed store,” said Robb, who was under the impression that stores viewed in the community as a nuisance would be the first to be shut down by the CSU.

“So we thought that was a viable option… I was pretty confident that we were going to see the same story play out for us that we saw for others.”

At this time, municipalities took varying approaches to the way existing cannabis storefronts should operate while awaiting their provincial licence. Some, like North Vancouver and Vernon, said existing businesses would not be issued municipal licences unless they closed down.

Other municipalities were unclear, though Robb and several other operators in Victoria believed that businesses with current municipal licences in the city could continue to operate while awaiting word from the province.

But after their applications were deemed complete and moved to the financial integrity and security screening process in early 2019, Robb said the flurry of communication that had existed between the company and the Liquor and Cannabis Regulation Branch (LCRB) was followed by complete radio silence.

According to the NAMP issued to Robb, which he shared with ITJ, the CSU paid an educational visit to the Trees location on Alpha Street on May 29, 2019, where they told the store’s manager that the store should stop selling illicit cannabis and cease operations until proper licensing was obtained. Staff there communicated that the store was awaiting its licence from the province, and they would continue to operate.

A month later, Robb’s confidence began to waver when staff from the LCRB reached out to request detailed financial information on two individuals they had deemed “key personnel” who had not been included in Trees’ application package.The individuals in question had been two private investors who were briefly involved with the company back in 2015, but were no longer associated with the business in any way.

“After months of hearing nothing and making several requests for updates from financial integrity screening, we received a request that asked for very detailed information from people that we had no contact with anymore, and haven’t had contact with for years,” he said.

“That’s when we started contemplating our own shutdown plan.” With close to 200 employees and thousands of customers, the company needed to plan carefully.

“One of the considerations was that we had obligations as employers, that if we were going to do mass terminations, we’d have to give eight weeks notice,” he said.

(handout)

Another was that many customers of Trees relied on high-potency products that could not be obtained at legal storefronts. At this time, there were no licensed shops in Nanaimo, and just a handful in Victoria, where other unlicensed shops also continued to operate.

“That’s where we determined that we were going to close down in September.” Robb notified the CSU of the company’s plan to close its shops.

Ten days later, the shop on Alpha Street was raided.

Confusion addressed by LCRB

“They very specifically said, ‘it’s because you’re the biggest’.”

That’s what officers with the CSU told Robb when he asked why the enforcement team had raided the Alpha Street location in Victoria on July 31. According to Robb, Trees was targeted on the basis of market integrity: the primary reason for enforcement was because they continued to operate without a licence while other shops in Victoria had already obtained licensing.

An emailed statement sent to ITJ from the communications office of the Public Safety and Solicitor General confirms this sentiment: “All along, we’ve aimed for voluntary compliance, and have been very clear that once legal retail cannabis outlets became operational in a community the illegal retailers would be shut down.”

Trees was targeted on the basis of market integrity: the primary reason for enforcement was because they continued to operate without a licence while other shops in Victoria had already obtained licensing.

The next day, after the location was greeted by a second enforcement action, Robb and the Trees team made the tough decision to close all shops to avoid jeopardizing their ongoing licence applications.

“We were the largest chain of continually operating storefronts in the province at that time… and so that was really why they prioritized us,” Robb said.

He argues that had the LCRB and CSU been more transparent about their enforcement timeline prior to legalization, “it would have created a much more level playing field for everyone, rather than having everyone guess about the next appropriate action.” Robb also finds it confusing that during this time, other storefronts that continued to operate in the city without licences were eventually licensed.

His frustration with the LCRB’s lack of communication on this issue has prompted the regulator to address it on a greater scale. In a February 14 notice obtained by ITJ, the LCRB’s Dugald Smith addressed all applicants for cannabis retail store licences, including those who have received an approval in principle, with regard to illegal cannabis operations.

“To date, the Liquor and Cannabis Regulation Branch (LCRB) has issued 196 non-medical cannabis retail store (CRS) licences,” reads the letter. “With these licensed stores and the 13 BC Cannabis Stores in communities across the province, along with the availability of cannabis online through BC Cannabis Stores, the legal industry is now well-positioned to support consumer demand.”

It goes on to tell applicants that the province is amending its approach, and will now take an applicant’s history in the illicit market into greater consideration. The new measure is attached to an additional disclosure form that applicants must fill out prior to being issued a licence.

“This may be considered grounds, in and of itself, to find an applicant not fit and proper, and therefore, the basis of denial of a CRS licence application, or the revocation of an approval in principle,” it reads.

The letter addressed to all cannabis retail store licence applicants from the LCRB (handout)

CSU's hearing procedures amended

The NAMP issued to Robb alleges the Alpha Street store continued to operate between May 29 and July 31, selling a total retail value of $771,557.50 worth of cannabis products. The proposed penalty being levied on Robb is, as per the Cannabis Control and Licensing Act (CCLA) twice that, at $1,543,115.

Robb sees the issuing of the penalty to him and not the company as “problematic”. The CCLA allows for the province to pursue penalties against the director of an unlicensed company, but Robb says being the director doesn’t necessarily imply that an individual with such a title, as in his case, has complete control of the company—or that they have the funds to pay for such an exorbitant fine.

The NAMP dated January 20 gives Robb 30 days to make a potentially life-changing decision: either sign a waiver admitting to the contravention of the CCLA, accepting the reduced monetary penalty of $771,557.50 and waiving his right to a hearing; or, he could request a hearing with the CSU. The NAMP stated that if he decided to request a hearing and the decision did not go in his favour, he would be required to pay the full penalty.

But the CSU’s labelling of the process could be described as misleading. The so-called “hearing” would actually take place on paper.

“Basically, we would supply written comments, and they would supply written comments, and the person who would decide whether we successfully disputed the penalty was the person who issued the notice of penalty itself,” said Robb.

Both Robb, who has a background in political science, and his lawyer, Allan Macdonald, believe that the value of the penalty, “is not proportionate to the kind of expedient and sparse process” that is in place for hearings.

To make matters more frustrating, after obtaining legal counsel, Robb was informed by Macdonald that it was the CSU’s intention not to share its own evidence against Trees prior to the hearing, unless he formally agreed to the hearing first, thereby foregoing the opportunity to pay the reduced amount.

To make matters more frustrating, after obtaining legal counsel, Robb was informed by Macdonald that it was the CSU’s intention not to share its own evidence against Trees prior to the hearing, unless he formally agreed to the hearing first, thereby foregoing the opportunity to pay the reduced amount.

After correspondence between Macdonald and the enforcement arm, the CSU has released an addendum to its administrative hearing process.

Issued by the director of the CSU on February 14, the addendum outlines a new timeline: subjects of an NAMP will still be given 30 days to either sign a waiver or apply for a hearing. If the latter is chosen, subjects will be sent the CSU’s written evidence package, and then given another 45 days to either sign a waiver, or respond with their own written evidence.

Though he is glad that the process has been amended, Robb is eager to put this behind him.

“I do feel I sort of have a responsibility to at least make some challenges to this basic process, because it’s such an affront to standard notions of civil rights and procedural fairness,” he said.

“I want to move on with my life as quickly as possible, but I also do have problems as a citizen with these processes being put in place. I can understand the necessity for an efficient hearing structure, but when it’s $1.5 million, or $770,000 on one individual, the justice system needs to be a bit more thorough.”

This article is available under a Canadian Creative Commons licence.